Sri Lankan stocks end weaker; turnover hits 23-mth low

Reuters: Sri Lankan shares edged down for the third straight session on Wednesday, with turnover slumping to a 23-month low, as investors stayed off risky assets on concerns over rising domestic interest rates.

Shares moved in line with regional peers which fell on worries over the health of global banks, particularly in Europe, pushing investors into safer assets such as the Japanese yen.

The main stock index ended 0.13 percent weaker at 6,364.40, its lowest close since Feb. 1.

"Nothing is happening at all. Local investors are on the sidelines and the foreign investors are exiting and not taking positions," said Yohan Samarakkody, head of research, SC Securities (Pvt) Ltd.

"Market is holding on due to the earnings cycle. But I don't think there will be enough strength for the market to hold on after the earnings season is over as there is no liquidity."

Foreign investors sold a net 16.2 million rupees worth shares on Wednesday, extending the year to date net foreign outflow to 210.9 million rupees ($1.47 million) worth of equities.

The key Sri Lankan stock index has fallen 7.7 percent this year through Wednesday as foreign investors, unnerved by global concerns over China's economy, cut their exposure.

Some investors are shifting to fixed interest rate-bearing assets due to a gradual rise in interest rates, analysts said.

Yields on t-bills rose between 8 and 17 basis points at a weekly auction on Wednesday with the 182-day and the 364-day t-bill yields rising to over two-year highs, signalling a further rise in market interest rates.

Turnover was 182.4 million rupees, the lowest since March 2014 and less than a quarter of this year's daily average of 770.9 million rupees.

Shares of the biggest listed lender Commercial Bank of Ceylon Plc fell 0.9 percent, while Cargills (Ceylon) Plc and Ceylon Tobacco Company Plc fell 1.95 percent and 0.51 percent, respectively. 

($1 = 143.90 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Tea exporters target US $ 5 b by 2020

The Tea Exporters Association (TEA), the private sector body dedicated to promote tea exports will conduct a workshop on 'Tea Strategy Development' in each stakeholder sector of the tea industry to achieve the revenue target of US $ 5 billion by 2020.

The workshop will be held on Tuesday, February 18 from 2.30-6.30 p.m. at the Export Development Board auditorium, Nawam Mawatha, Colombo 2.

Minister of Plantation Industries, Navin Dissanayake will inaugurate the session while the Chairman, Sri Lanka Tea Board, Chairperson, Export Development Board and senior officials in the relevant state organisations will also participate in the workshop.

The workshop will help stakeholders and policymakers to understand the future needs of the tea industry and map-out a plan to ensure its sustainability. It will also focus on four key areas of the tea sector such as new business models for plantation and manufacturing sectors, marketing of Ceylon Tea in today's context, current trends and prospects in the global tea market and implications of exchange rate fluctuation on the tea industry.

The panel of speakers include Dr. Indrajit Coomaraswamy, Mangala Boyagoda, Lasantha Abeywickrama, Roman Scott (Singapore), Roshan Rajadurai, Anil Cooke and Anil Alwis while Niraj de Mel will be the moderator. The event is open to all stakeholder members of the tea industry and for service providers such as banks, freight forwarders and logistics companies.www.sundayobserver.lk

Stockbrokers to go hi-tech

By Duruthu Edirimuni Chandrasekera

In three months the Colombo stockbrokers are set to have their systems integrated and hi-tech making it seamless for them to transact. This will lead to Delivery versus Payment, Central Counter- party along with risk management that will lead to new products being introduced such as short selling and derivatives, officials said. ”Short-selling for an example will form some level of mitigation from the downward slide that the Colombo Stock Exchange (CSE) is now experiencing which helps traders to profit in a down market or protect existing investments while securing risk management feactures,” Ravi Abeysuriya, President Colombo Stock Brokers Association (CSBA) told the Business times. He said that (share transaction) order management and broker back -office systems will be in place by April 31.

He added the infrastructure in Sri Lanka’s capital markets have been stagnant for the past decade and it’s time they’re uptodate. CSBA has proposed a mobile solution to the recording system that was incorporated into the stockbroker rules in August 2012 by the CSE which stipulates the brokering houses to use a telephone recording system to record clients’ order instructions and maintain these records for at least six years. “This is to be introduced to fill the gap in recording mobile phone calls (when clients give instructions on Mobil transactions).” Mr. Abeysuriya noted that the absence of a professionally managed non captive large institutional investor base in Sri Lanka is an enormous challenge. The main long term superannuation funds are largely captive and are saddled with conflict of interest.

He added that if the ‘indispensable’ State Owned Enterprise (SOE) reforms are brought about, it would lead to a mixed ownership structure and more transparency, management efficiency and reducing the dependence on taxpayers. “This would classify the CSE as a more developed and mature ‘emerging market’ that is widely tracked by foreign investors and considered to be active and liquid than a ‘frontier market’. CSE would be included in the MSCI Emerging market Index with the listing of a few SOEs and many large and successful companies.” Mr. Abeysuriya added that as a result, a significant amount of foreign investors that replicate the MSCI Emerging Market Index (tracked by investors managing about US$8 trillion in assets) would have invested in Sri Lanka.

“Several new products such as Real Estate Investment Trusts (REITS) and Exchange Traded Funds would have been listed in the CSE, providing retail investors wider flexibility and an avenue to gain entry into the real estate market with a small amount of capital and liquidity to exit. These would have led to increasing the depth and breadth of the market and increasing the market capitalisation of the CSE as a percentage of GDP at least to about 50 per cent.” The capital market in Sri Lanka is under -owned by domestic investors versus its emerging market peers. Only 6.5 per cent of the Rs. 3.1 trillion market capitalisation of the CSE is owned by institutional institutions such as EPF, ETF, Insurance Companies and Unit Trusts. “This needs to change,” Mr. Abeysuriya added. 

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Stockbrokers’ risk based capital adequacy ratio to be implemented

By Duruthu Edirimuni Chandrasekera

The Colombo Stock Exchange (CSE) is to implement a risk based Capital Adequacy Ratio (CAR), which would ensure that stockbrokers retain an appropriate level of liquid capital in relation to the total risks faced by them when trading in securities, officials said. The CAR will replace the present net capital requirement of Rs 25 million each for the 29 stockbroking houses in a move that will see the industry players consolidating, they said. “The SEC approved the CAR last Friday at their Commission meeting. We will make a presentation to the stockbrokers and the plan is to implement it before June,” a CSE official told the Business Times. He said a certain formula on the CAR will be implemented.

Industry analysts pointed out that this will push smaller players to join with their larger counterparts. They say that it’s a good move as the market is too small for 29 players and consolidation has to happen. Ravi Abeysuriya, President Colombo Stock Brokers Association (CSBA) told the Business times that the CSBA feels that there are too many stock broking licences. “The CSBA is very much for consolidation. The stock broking industry would have transitioned into universal broking and become more viable with the consolidation of the industry with increased trading volumes and broking fees which are market determined.”

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Sri Lanka sells Rs20.7bn in bonds; 2041 bonds at 12.15-pct

ECONOMYNEXT - Sri Lanka has sold 20.6 billion rupees in bond with a 25 year bond maturing in January 01, 2041 sold at a weighted average yield of 12.15 percent, up from 12.09 on January 01.

The debt office sold 10.45 billion rupees of 14 year bonds maturing on 15.05.2030, at an average yield of 11.66 percent after offering only 3.0 billion rupees.

The debt office sold 10.25 billion rupees of the 2041 bond after offering 5.0 billion rupees.

Bids for 4-year bonds were rejected.

On January 08, the debt office sold 19.6 billion rupees of 2041 bonds at a weighted average yield of 12.09 percent.

After the auction the yield fell sharply (the price of the bond rose) and a state managed fund was seen buying them as yields fell to around 10.80 percent giving large profits to primary dealers who bought at the auction and shortly after.

The bond prices started to fall (yield started to rise) from around January 27 when another long bond auction announced.

The 2041 bond closed on 11.75/12.10 on Wednesday. After the auction on Friday the bond was quoted 11.60/75 percent dealers said.

High volatility had been observed in several longer tenor bonds in recent auctions.

There has been concern that the high volatility of bond yeilds, which gives opportunities dump bonds at low yields (high prices) on state managed funds.

While some volatilty is inevitable when auctions are conducted Sri Lanka also accepts higher than offered volumes at bond auctions, which allows auctions to be rigged, by giving misleading information to the broader market, critics have said.

Sri Lankan shares steady in dull trade

Reuters: Sri Lankan shares ended steady on Friday in thin trading volume as investors awaited cues on the macro economy amid a rise in interest rates and as global economic concerns dented sentiment.

The main stock index ended 0.03 percent firmer at 6,404.64.

Stockbrokers said local participation was low as some investors were on holiday in the short trading week. Markets were closed on Thursday for independence day.

"Interest rates are slowly picking up and the market is concerned over that," a stockbroker said on condition of anonymity.

Turnover was 307.9 million rupees ($2.14 million), less than half of this year's daily average of 828.5 million rupees.

The index had fallen 7.1 percent this year through Friday as foreign investors, unnerved by global concerns over China's economy, cut their exposure.

Foreign investors sold a net 60.6 million rupees worth of shares on Friday, extending the year-to-date net foreign outflow to 259.3 million rupees.

Analysts said a rising trend in local interest rates has been a concern and local stocks could come under further pressure.

Yields on treasury bills rose between 7 and 23 basis points at a weekly auction on Tuesday with yields on 182-day and 364-day T-bills rising to more-than-two-year highs, signalling a further rise in market interest rates, which move in tandem with the yields.

Shares of market heavyweight John Keells Holdings Plc rose 0.31 percent, while Sri Lanka Telecom lost 3.6 percent.

($1 = 143.9500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anupama Dwivedi)

Rs 800 M Chick Mill upgrade

Bairaha, together with Crysbro, is engaged in a Rs 800 million venture, to meet the working capital requirements of its feed mill located at Gampola.

The two chicken producers operate a feed mill in Gampola under the umbrella Fortune Agro Industries (Pvt.) Ltd. Bairaha in this connection has raised Rs 400 million from Amana Bank and Fortune the balance, from MCB Bank.

Fortune is a Rs 1.65 billion investment between the two poultry giants. It was set-up two years ago. The other poultry giant in the country is Prima, a Singapore based conglomerate. From being a back-yard type of an industry, poultry industry of Sri Lanka has developed into a commercial industry over the past three decades.

In early 1950s the government of Sri Lanka launched a programme to upgrade local indigenous poultry population in the country. Since then, this sector has shown a phenomenal growth, most prominently in the broiler sector, mainly due to active participation of the private sector. The industry today is in the hands of the private sector; the role of the State being confined mostly for implementation of poultry health management programmes, research and policy development for further consolidation of the industry.

About 70% of the contribution to livestock sub-sector in Sri Lanka comes from chicken meat and eggs.

With the current purchasing levels of consumers, the industry is capable of producing all local requirements of chicken meat and eggs. Chicken meat and eggs becoming relatively cheap compared to other animal products have thus made these products the most consumed animal protein sources in the average Sri Lankan diets.

Chicken meat and eggs are available throughout the country, in supermarket chains in the main cities up to small retail shops in rural areas. Current per capita availability of chicken meat and eggs estimated to be 4.8 kg and 57 eggs respectively.

The broiler industry is mostly integrated and employment opportunities are provided through contract grower system. Branded chicken is marketed through 15 large and medium scale broiler processors.

Manufacture of value added products have become a lucrative industry with export potential. Already four (04) broiler processors and five (05) further processing companies have obtained certification under internationally accepted HACCP system.

Two (02) local grand-parent farms produce around 70% of country's requirements of parent birds. Quality poultry feed are produced by local feed manufactures and two multinational companies are also engaged in the feed business in the country. However, around 85% of feed raw material requirements are currently being imported. With the ever-increasing world market prices of raw materials, and possible shortage in the global market due to conversion of maize into 'bio – fuel', the Livestock Ministry together with the Ministry of Agriculture and the Central Bank of Sri Lanka has taken steps to develop and expand maize cultivation in Sri Lanka. The government imposed a 20 percent cess in April 2005 on the imported maize to influence a better producer price for maize growers. There is a greater interest now by the private sector in maize growing using contract farmers and this will soon have a positive effect on the poultry sector. (PGA)

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